CIBIL Score: How to use credit report to plan finances? Here are 5 ways

Your CIBIL report, or credit report, gives a peek into an overview of your entire credit history and financial behaviour. When you analyse your CIBIL report, you can make informed decisions and plan your finances in an effective way. 

For example, when 28-year-old Ravi Sharma got access to his CIBIL report, he discovered that his credit score was too poor to raise a loan on favourable terms. Consequently, he changed his financial behaviour in order to improve the score in the near future. 

Different ways in which you can use CIBIL report to make financial plans:

Evaluating creditworthiness: Your CIBIL report includes your credit score, which is a representation of your creditworthiness. A higher credit score shows lower credit risk and vice versa.

Banks, therefore, use this score to judge your creditworthiness when you apply for loans or credit cards. By knowing your credit score, you can gauge your likelihood of getting approved for credit and negotiate better loan terms.

Find the areas for improvement: Reviewing your CIBIL report enables you to identify any negative factors affecting your credit score, such as late payments, high credit utilisation, or accounts in collections. Addressing these issues can help improve your credit score over time and enhance your financial prospects.

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Monitoring credit health: Monitoring your CIBIL report regularly enables you to keep track of your credit health and detect any inaccuracies or fraudulent activity. By promptly addressing errors, you can safeguard your financial reputation and prevent potential damage to your credit score.

Managing debt responsibly: Your CIBIL report provides a detailed record of your outstanding debts, including loans and credit card balances. By examining this information, you can prioritise debt repayment strategies and manage your debt more effectively.

For example, you can focus on paying off high-interest debts first or consolidate multiple debts into a single loan for better management.

Before raising a loan: Before applying for a house loan, auto loan, or any other significant financial transaction, it's recommended to review your CIBIL report.

Regularly monitoring your credit report enables you to take proactive steps to improve your creditworthiness and achieve your long-term financial objectives.

Frequently Asked Questions:

Why is it important to pay bills on time?

Payment history is a significant factor in determining your credit score. Even a single missed or late payment can negatively impact your score.

Is payment of debt enough to maintain a good CIBIL score?

Paying off debt is indispensable to maintain a good credit score. However, it is the responsible financial management that leads to a good CIBIL score.

ALSO READ: How do student loans influence your credit score?

How does hard inquiry impact your CIBIL score?

Each new credit application results in a hard inquiry on your credit report, which can temporarily lower your credit score. 

How does keeping old accounts open help in maintaining good credit score?

Closing old accounts can shorten your credit history, which may lower your score. So, one might as well keep them open.

How does reviewing credit score help?

It is vital to monitor CIBIL score regularly to track your progress and identify any changes.